FCC Faces Tuesday Deadline For VoIP Ruling

Interconnection fees between IP voice traffic and Bells' last mile copper
networks at source of dispute.

The Federal Communications Commission (FCC) has until Tuesday to decide if
Level 3 must pay negotiated reciprocal compensation rates or higher,
government-mandated access charges for IP traffic that interconnects with
the public switched telephone network (PSTN).

If the FCC does not rule by Tuesday on the issue, Voice over IP
wholesaler Level 3 will by default be allowed to pay the
lower reciprocal rate. Currently, Level 3 and other VoIP providers are paying
the lower reciprocal fees pending the FCC decision.

The lower reciprocal rate applies only to "information services" as defined
by the FCC. The agency is currently conducting a review of all IP-based
services, but it has not legally defined Internet telephony as an
information service.

Access charges, on the other hand, often include not only connection fees
but also other subsidies, such as the Universal Service Fund. The United
States Telecom Association, the principal trade association of the Baby
Bells, contends that if VoIP providers are allowed to continue to pay
reciprocal rates, funding for communications services in rural and low
income areas will be "drastically reduced."

If forced to pay the higher access fees, VoIP providers are likely to pass
the extra charges on to consumers. That in turn, Level 3 says, will slow
the rollout of the emerging service.

"Under Level 3's flawed logic, the rates it pays for electric service, water
service, mail service or any other state-regulated service would be a tax on
the Internet," SBC said in an FCC filing Friday afternoon. "In any event,
under the commission's long-standing rules, Level 3 is subject to access
charges when sending IP-PSTN traffic over the PSTN."

Level 3 calls the higher access fee a "compelled subsidy" based on the 20th
century telecom economics of time and distance. It can cost more to send a
call one mile than it does 10,000 miles, but the system has fostered low,
albeit subsidized, local rates for consumers.

"We believe it is an antiquated regime. If passed on to consumers, the rate
increases would be in the 20 to 30 percent range based on current rates,"
John Ryan, a senior legal vice president at Level 3, toldinternetnews.com last month.

To support its forbearance petition, Level 3 submitted in February a
financial modeling program to the FCC that claims the growth of VoIP traffic
will not have a significant impact on access charge revenues collected by
carriers over the next two years.

According to the Level 3 study, if the FCC were to reverse the current
intercarrier compensation regime and apply access charges to VoIP traffic,
carriers' access charge revenue would increase by only 1.8 percent to 3
percent through 2006.

"In our view, these figures show strongly that there is no compelling need
to apply access charges to Voice over IP," Bill Hunt, vice president of
legal and public policy for Level 3, said in a statement issued with the
report.

SBC's Friday filing at the FCC questions the logic of the Level 3 financial
model.

"Level 3's attempt to downplay the growth of VoIP to this commission cannot
mask the facts: the tremendous growth potential of VoIP is universally
recognized and, in fact, has been touted by Level 3 itself to the investment
community."

The war of words between Level 3 and SBC is part of a larger proceeding at
the FCC aimed at modernizing the rules for exchanging traffic between
networks. The federal courts have already ruled that the old tariff system
on phone calls is stifling competition.

A group of nine carriers known as the Intercarrier Compensation Forum (ICF),
which includes SBC and Level 3, has submitted a proposal to the FCC for new interconnection rates to update the nearly 20-year-old system.

In filings with the FCC, SBC urges the agency to reject Level 3's petition
until the ICF proposal is fully reviewed.

rmark@jupitermedia.com

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